Understanding the IRS Scandal – Distractions from the TruthBy John Davis Region 8 Webmaster and LUPA Advisory Council Chair

There is a story about a master thief who tricked a cement factory. One night the guard watched a man roll a wheelbarrow full of sand outside the gates. The guard didn’t act because – it was only sand. The next night the guard watched as again he rolled away a small load of sand. Thinking to himself- “it is only sand” - the guard watched him and let him go on his way. Night after night the thief wheeled away one wheelbarrow of sand as the guard watched and laughed. However, one day the factory realized all their wheelbarrows where missing. That is when the thief’s plan became apparent – he wasn’t stealing sand he was stealing wheelbarrows. The sand was just a distraction.

The current “IRS Scandal” in Washington could be compared to the story of the master thief- it is a distraction from a larger issue. A group of representatives have cried foul accusing the IRS of “singling out groups with Tea Party” in their name for extra scrutiny. Sounds good right? Some claimed the IRS has bullied Tea Party groups on their paperwork. However, you have to look at what paper work it is to get the full story.

The issue centers on groups who apply for non-profit or tax free status. There are two classifications for non-profit status and these include 501 (c) (4) and 501 (c) (3) status. A 501 (c) (3) group is a charity that raises money and spends it to help those in need. They provide for the greater good.

A 501 (c) (4) classification is for groups that “provide social welfare”. This part of the tax code goes all the way back to 1913. These groups aren’t charities but are suppose to provide for the greater good. 501 (c) (3) aren’t allowed to participate in any political activity, while 501 (c) (4) groups are allowed some lobbying efforts so long as their sole purpose isn’t political. In the 1950s the IRS loosened up regulations on the 501 (c) (4) groups and allowed some lobbying efforts. (Prior to then neither group could participate in any political activity.) When the scope of 501 (c) (4) groups was expanded in the 1950s, the change only allowed for political education – making no allowance for supporting candidates. Another thing happened in the 1950s that made the 501 (c) (4) groups unique. In a case involving the NAACP the Supreme Court ruled that 501 (c) (4) groups don’t have to disclose their donors. This was done to protect the safety of people who supported the Civil Rights movement.

Fast forward to 2010 when another Supreme Court decision changed the face of 501 (c) (4) groups. The Citizens United ruling found the federal government couldn’t restrict political activities of corporations, unions and associations. In a nut shell this ruling lifted all restrictions on political spending by anyone. The IRS was flooded with request for 501 (c) (4) status for groups following the ruling. According to the IRS, the number of request doubled. To try and sort through these requests, the IRS began targeting groups whose name would suggest political activity. It is important to remember, while the Citizens United ruling lifted restrictions on spending – it did not change the intent of the 501 (c) (4) status for the IRS.

As the IRS began sorting through this influx of request for the 501 (c) (4) requests, they flagged organizations whose name suggested political activity for extra scrutiny. While the words Tea Party and Patriot were used to flag groups to insure they met the requirements, groups with liberal sounding names were also flagged. However, there hasn’t been any discussion about these groups. So like the sand being stolen from the cement factory, the distraction has covered the real issue.

Since the scandal hit the airwaves, the IRS has begun granting 501 (c) (4) to the groups “centralized” with the increase in request. According to the IRS’s own press release concerning the issue, 175 of the 300 organizations that had been flagged saw a speedy approval for their non-profit request. This means that many new political groups have gained tax free status and will have the opportunity to funnel billions into the next election cycle. Due to the Supreme Court ruling back in the 1950s, these groups do not have to disclose where the money comes from. So this scandal was essentially a way to give tax free status to many groups that don’t qualify. This leaves the IRS in a position that makes it hard to ask questions they should ask – and giving a free pass for political groups to hide their donors as the corporate interest buy elections without any paper trail.

Just as the master thief hid the fact he was stealing more valuable wheelbarrows by giving the appearance of taking sand, this scandal is nothing but a distraction to prevent the IRS from doing their job. In the end we all lose because of the dark money this issue is going to allow. Washington insiders like John Boehner have beaten the drum on this scandal because he knows he can gain political profit from these groups funneling money into campaigns he is a part of.

It is time we demand better of our elected officials. It is time to govern rather than spend their time manufacturing scandals and looking for ways to circumvent our laws for political gain. We can’t afford to stand with our heads in the sand while the wheelbarrows are disappearing.